Is life insurance the next Big Bird?

By Corey Dahl

LifeHealthPro

I still remember my first concert like it was yesterday. Lots of loud music; a wild, gyrating crowd. I wasn’t there to see Boyz II Men, or Mariah, or Green Day. I was there for the late ‘80s/early ‘90s rock phenomenon that was Sesame Street Live, and I danced in the aisles like a 5-year-old hopped up on Sweet Tarts because I was a 5-year-old hopped up on Sweet Tarts.

So imagine my dismay during last Wednesday’s presidential debate when Mitt Romney promised to cut federal funding for Big Bird and the rest of his buddies on PBS. My Twitter feed exploded, proving I wasn't the only one not in love with the idea. Move over Medicare and Social Security; the real third rail in politics these days is apparently muppets.

But however you feel about the Big Bird uproar, it’s a fight life insurance producers should be watching closely. As my colleague Brian Anderson has pointed out, the tax benefits of life insurance will be at stake again next year, as Congress and whoever’s our president in 2013 sit down to sort out the budget. If lawmakers are willing to ax something with as much goodwill behind it as PBS (81 percent of children between the ages of 2 and 8 tune in annually, and 91 percent of U.S. adults do the same, for programs like “Frontline,” “Nova,” and, my personal favorite, “Downton Abbey”), what are the chances for life insurance’s not-so-well-known “loopholes”?

Though Elmo and death benefits hardly seem to have much in common, both PBS and the life industry have fought similar budget battles over the years. PBS has been fighting against funding cuts as far back as 1969. (Mr. Rogers himself went to Capitol Hill to defend the service back then, as evidenced in a speech that went viral minutes after the presidential debate.) It’s a favorite target of budget cutters, even though the $430 million it receives annually from the government makes up just 1/100th of 1 percent of the federal budget. “Sesame Street” itself receives no direct federal funding. The show is paid for by grants and donations, but it relies on PBS for distribution.

For many people, PBS probably wouldn’t cease to exist if federal funding was cut. Government money accounts for just 15 percent of the station’s aggregate funding. However, federal funding can account for up to 50 percent of budgets at member stations, especially among those in small, rural areas without large donor populations to depend on. Without the government money or the intervention of private donors, those stations would likely go dark.

The life industry is in a similar predicament. Life insurance benefits have been a favorite target for years, especially recently, as Americans’ anger over the nation’s finances has escalated. In his 2013 budget proposal, President Obama included the repeal of some tax benefits associated with corporate-owned life insurance and a reduction in the dividends-received deduction that life insurers use in accounts that fund variable life insurance and annuities. In Wednesday’s debate, Mitt Romney said that rather than raise taxes, he’d prefer to close loopholes in the tax code and end certain deductions.

Just like PBS, life insurance likely wouldn’t cease to exist if its tax benefits were altered. It’s still the only product that can provide financial security for bereaved families for pennies on the dollar. However, it’s use for more complicated purposes — as an estate planning tool, for example — would likely suffer.

A bigger problem for the life insurance industry, though, is that it will likely never be able to muster public outrage over funding cuts on the same scale as PBS. Though 75 million Americans make use of life insurance tax benefits, according to NAIFA, there’s no Life Insurance Live tour coming to an auditorium near you.

As agents, then, it falls on you to be the Snuffleupaguses (Snuffleupagi?) of the industry, educating your clients on the unique benefits of life insurance instead of the ABCs. Or make like Mr. Rogers and pay a visit to Capitol Hill. (NAIFA’s organizing a trip this April.)

Your livelihood, and not just your “Downton Abbey” addiction, might depend on it.